Deploying effective HCM technology can have a measurable impact on employee turnover, according to a report from Nucleus Research. That, in turn, can directly influence an organization’s finances, as well as the efficiency of its operations.
Rather than view high employee attrition as an acceptable cost of doing business, Nucleus analysts Brent Skinner and Trevor White found that employers who actively “foster a reduction in the turnover rate” see measurable financial gains.
While a number of factors that drive turnover fall outside the scope of technology, “these tend to apply to career-minded professionals who are advanced in their roles. Many other factors, however, have everything to do with technology. These influence the rate of attrition for anyone, including non-exempt employees,” said their report, The ROI of Reducing Employee Turnover.
Skinner and White discovered the connection while analyzing historical data on the ROI of HCM technology deployments. They found that when inefficient technology is behind core HR functions such as time and attendance, scheduling and benefits administration, turnover rises for hourly non-exempt, entry-level employees. When technology issues are addressed, that turnover markedly decreases.
For example, Nucleus found that an improved payroll system will reduce the employer’s turnover rate and show a return on investment by eliminating the costs associated with a high volume of recruiting and onboarding.
Those savings can be significant. Nucleus’s standard calculation assumes the fully loaded cost of an employee across all industries is 1.35 times their annual salary. When making a new hire, employers spend, on average, an additional amount equal to 30 percent of that fully loaded cost, the report said. Averages aside, Skinner and White noted that employee-replacement costs vary greatly, rising as high as 48 percent when highly skilled roles are involved and dipping to 16 percent for unskilled or low-skilled workers.
That doesn’t mean businesses with lower-skilled workers face less of a challenge. Many of the industries with high rates of turnover rely on unskilled laborers who earn minimum or low wages. In some, turnover can reach 100 percent or more each year. In those cases, 16 percent turns into a lot of dollars.
Turnover Can Cost More Than Technology
In either case, using proper technology plays a big role in minimizing costs. For example, imagine a company of 2,000 workers with an average salary of $45,000. If that company has an annual attrition rate of 35 percent, it must replace 700 workers at a rough cost of $18,225 each, or a total of about $12.8 million each year.
A number of observers say HR technology that’s easy to use and offers robust self-service play an increasing role in engagement and retention, especially among both younger and lower-skilled workers. According to Skinner and White, “it is not unheard” of for cloud-based payroll, scheduling and time and attendance tools to cost approximately $13 per month per employee. That would be $312,000 annually for our 2,000-employee company. That investment won’t completely eliminate the millions involved in addressing turnover, but if it reduces employee exits by even 5 percentage points, our company will spend $1.4 million less in replacement costs.
By analyzing Nucleus’s database of case studies, Skinner and White also found that employers with high turnover often lack effective workforce management systems. Problems with payroll and scheduling, they suggest, influence how employees feel about their companies and often prompts them to look for new jobs. Payroll issues are particularly problematic at large companies, “where attempts to get an error fixed can be a bureaucratic hassle.”
HR shouldn’t underestimate the importance of getting these basics right, especially when core HR functions are especially important to the likes of entry-level and low-skilled employees. “Our analysis shows improvements to payroll can reduce employee turnover by 30 percent,” wrote Skinner and White. In addition, they said such improvements, and the resulting reduction of turnover, can result in a 60 percent dollar savings.
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